BMO, Scotiabank slash price targets for Vermilion Energy stock

Two analysts have lowered their price estimates for Vermilion Energy (VET.TO)(VET) shares, predicting that windfall taxes will negatively impact the global oil and gas producer of fossil fuels in Europe, causing poorer output and more investment in 2023.

Calgary-based The energy assets held by Vermilion are spread across three Canadian provinces, Europe, and Australia.

European legislators have looked to the energy sector for funding to protect consumers from high costs since Russia’s invasion of Ukraine. Profits 20% above a predetermined baseline in Ireland, where Vermilion has offshore gas operations, will be subject to a 75% tax rate.

Vermilion presented its 2023 budget and planning last Friday, projecting that it will be responsible for $250 million in windfall taxes for the fiscal year 2022 and $300 million for the following year.

Chief Financial Officer Lars Glemser stated during a conference call on Friday that Vermilion vehemently opposes windfall tax policies because they “promote the inverse” of putting Europe’s gas supply in line with demand.

A warmer-than-expected start to winter in many regions of the world has also caused natural gas futures to decline. However, storage levels in Europe are still considerably above the seasonal average over the past five years.

Jason Bouvier, an analyst with Scotiabank Global Equity Research, reduced his price objective for Toronto-listed Vermilion shares from $40 to $32 on Monday while keeping a “sector perform” rating.

Mike Murphy at BMO Capital Markets cut his forecast from $32 to $25 on Friday, citing lower gas prices and tax headwinds. His revision follows that of Mike Murphy. However, Murphy still rates the stock as “market perform.”

At 12:56 p.m. ET on Monday in Toronto, Vermilion shares increased 1.08 percent to $20.51, down from their peak near $40 in late August.

In its Friday report, Vermilion provided output guidance below analyst expectations: 87,000 to 91,000 barrels of oil equivalent per day in 2023. A far cry from the $1.8 billion estimate the company provided in August, its expectation for free cash flow this year of $800 million.

Despite the current tax difficulties, Vermilion plans to spend $570 million in capital expenditures in 2023, a seven percent increase. In addition, the company is looking at long-term natural gas opportunities in Europe.

The Friday statement did not only provide terrible news for investors. It also included a $0.10 per share quarterly dividend increase for Vermilion, representing a 25% increase and a 1.90% annualized yield. The business also states that it has resumed its share buyback program, which it had put on hold in the fourth quarter while it evaluated the effects of windfall taxes in Europe.

- Published By Team Timeswire

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